SEC Files Emergency Action to Stop Ongoing Microcap Stock Fraud

[thai626]

SEC Files Emergency Action to Stop Ongoing Microcap Stock Fraud
FOR IMMEDIATE RELEASE
2006-50
Washington, D.C., April 6, 2006 - The Securities and Exchange Commission today filed an emergency enforcement action in federal court charging two New York men, Faisal Zafar and Sameer Thawani, with perpetrating an ongoing securities fraud over the Internet. The complaint alleges that since late 2004 and as recently as March 2006, Zafar and Thawani have engaged in a "pump and dump" scheme to manipulate the market for at least 24 thinly traded "microcap" or "smallcap" stocks. The defendants made over $873,000 by purchasing the stocks, anonymously disseminating false information about the companies on popular Internet message boards, and then selling the stocks at artificially inflated prices.

To deceive investors into buying these stocks, the defendants have preyed on public fears about terrorism and international health epidemics, among other topics. For example, after the London subway bombings and reports concerning a deadly "bird flu" virus, Zafar posted messages falsely stating that one issuer was receiving a contract from the Department of Homeland Security to improve security on New York City subways, and that another issuer was acquiring a company that produces "bird flu" vaccine.

Acting on the Commission's application for emergency relief, the United States District Court for the Eastern District of New York issued a temporary restraining order that, among other things, froze the defendants' assets and set a date for a hearing on the Commission's motion for entry of a preliminary injunction against further violations and other relief while the action is pending.

Mark K. Schonfeld, Director of the Commission's Northeast Regional Office, said, "Today's action underscores the Commission's continued vigilance against all forms of fraud involving the microcap market. Investors who participate in this segment of our capital markets are entitled to know that the securities laws will be vigorously enforced against all violators."

David Rosenfeld, Associate Regional Director of the Northeast Regional Office, added, "The defendants preyed on innocent investors by using the relative anonymity of the Internet to manipulate the market. We have acted today to stop a brazen fraud and hold the perpetrators responsible for the harm they caused investors."

The Commission's complaint further alleges as follows:

After buying shares at prevailing market prices, Zafar and Thawani used online aliases to post messages touting the stock and containing phony press release excerpts or other fake "news" about the issuer to deceive investors. In addition to capitalizing on actual events in the news, the phony headlines concocted by the defendants have also included false claims of huge business contracts, mergers and strategic alliances between these little-known issuers and an array of major corporations -- such as Google, Kmart and Sun Microsystems -- and other dramatic developments designed to make the targeted stocks appear to be surefire investment opportunities.

Zafar and Thawani are engaged in a classic Internet "pump and dump" manipulation scheme whose basic structure is as follows: (1) one or both of the defendants purchase shares of the issuer's stock in their online brokerage accounts; (2) the defendants register multiple online identities ("User IDs") with Internet message board services; (3) the defendants post multiple messages attributed to their User IDs on Internet message boards devoted either to the touted stock or to other, more widely followed stocks; (4) the messages contain materially false statements about the issuer and urge other investors to buy the stock; and (5) as soon as the stock price increases due to purchases spurred by the false statements, the defendants sell their shares at the inflated price for a quick profit. After their sales, the price of the stock quickly returns to its pre-manipulation level. These events sometimes all occur within the span of a single day.

The defendants have created at least 300 different User IDs and have used them to post well over one thousand messages fraudulently touting the stock of at least 24 small-cap issuers, some of them on multiple occasions. The defendants created these multiple online aliases in order to conceal their identities from investors and make it appear as if the same breaking "news" is coming from multiple independent sources. More recently, the defendants have also targeted specific investors by posing as moderators of Internet user groups devoted to low-priced stocks and sending emails to the group members while simultaneously posting false messages on different Internet message boards about the same stock under different user names. These emails purport to alert investors to imminent news about the stock and urge them to capitalize by buying the stock before the "news" is made public.

The complaint charges Zafar and Thawani with violations of the antifraud provisions of the federal securities laws. In addition to permanent and preliminary injunctive relief, the complaint seeks disgorgement of all illegal profits and the imposition of civil monetary penalties.

The Commission acknowledges the cooperation of the United States Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation in this matter.


# # #

For further information contact:


Mark K. Schonfeld (212) 428-1020
Regional Director, Northeast Regional Office


David Rosenfeld (212) 336-0153
Associate Regional Director, Northeast Regional Office


George N. Stepaniuk (212) 336-0173
Assistant Regional Director, Northeast Regional Office

  Additional materials: Litigation Release No. 19642

 

http://www.sec.gov/news/press/2006/2006-50.htm




Wow.....I found it very interesting when I read this article.   

It shed some light on some of the things I've seen on a Yahoo message boards (which I don't really into).  I recall having seen some links to come join Sinovac's Investors Group board which often times was promoted heavily by many anonymous users to join.    Although I never joined and never read a single message from that private board, I'm curious if SVA is one of the stocks described in the article. 
1)  BIRD FLU PLAY
2)  MICROCAP/SMALLCAP stock
3)  Sinovacs Investors Group on Yahoo boards (promoted by various users to join), etc

I'm curious to hear what others got to say about this.  Unfortunately this stuff happens to us everyday but it's hard to catch everyone of these crooks.  Thank God I found atleast one site that posts relevant/honest information!! (3StocksOnFire baby!).   

P.S.  I still like SVA..........It's a long term hold for me and as Melf said "Inverse Head and Shoulders".  Sure does look like that's going to play out.  Does anyone think that there is an Exhausted Trading Model with SVA???  Kind of looks like it but I'm not sure.  I'm not too familiar with that pattern.



Maybe I'm wrong, I just found this link after going through SVA's message board.  http://finance.groups.yahoo.com/group/Sinovac_Biotech_IR/

"This website is established by Segue Ventures LLC to facilitate communication between Sinovac Biotech Ltd. (AMEX: SVA) and the investment community:"
Now could that be a fakeout or are we to believe everything we read on the site?      I'm so confused 


Thai

[thai626]

Another link to a pdf file regarding the above!

Luckily, I could not find SVA on the list of manipulate stocks by the perpetraders although they didn't name all of them.   

http://www.sec.gov/litigation/complaints/2006/comp19642.pdf